Ideology, Morality and Rationality: The Uncomfortable Bedfellows of European Integration

Ideology as Insult

By Daniel Listwa. MA in Philosophy and Public Affairs at University College Dublin.

As the Euro Crisis heated up this past summer, I observed as a level of consensus arose among American, and other English-speaking, audiences with regard to what was happening in the Eurozone: the Germans, driven by moral ideology, set out to extract their pound of flesh from the Greeks, who, in German eyes, had irresponsibly spent beyond their means. Supported by the frequently pessimist writings of leading Keynesian economists like Paul Krugman and Joseph Stigliz, this narrative presented the German government as irrational and misguided, stating for example, “[t]hey were not orthodox economists following their models to their logical conclusion” (Krugman, 2015a). Rather, they were ideologues, subjugating reason to “morality-play economics,” and “political preference,” which has led Germany to impose harsh austerity and vast reforms on Greece, to Greece’s detriment (Krugman, 2015a and 2015b)

Given this emphasis on morality, it is of no surprise that some have speculated, à la Wittgenstein, about the causal effect on German mindsets of the fact that the German word for moral guilt, Schuld, is essentially the same as the word for financial debt (Rusinek, 2015). To an extent, this reasoning fits with the language used by German leaders; for example, Merkel, insisting in 2011 that the worst of the crisis had passed, suggested “Member states face many years of work to atone for past sins” (Castle, 2011). The prevalence of such morally-intoned language seems to give credence to the claim that the Germans allowed their ideology to trump economic rationality.

This picture, however, is—unsurprisingly—complicated when one looks at the arguments employed by those pushing for austerity. Throughout the negotiations of the Greek bailout deal, proponents of austerity turned the accusations from those like Krugman on their head, arguing that it is the Greeks who are being blinded by ideology. In a typical example, Martin Schulz, a German politician and President of the European Parliament, criticized Alexis Tsipras’s rejection of the bail out terms offered in June, saying that it is, in my translation, “rationally incomprehensible and barefaced ideology” (“Euro-Retter geben auf: Keine weiteren Kredite für GriechenlandNachrichten,” 2015)

In the debates that surrounded the Euro Crisis, ideology became an insult to be thrown at the opposition, a reason to dismiss the other’s argument without further consideration. Ideology—a set of beliefs and ideas, generally of a normative character—was presented as having no place alongside the scientific rationality of economics. This view of economics is far from unusual, as it is common among economist to regard their work as a positive science, a sort of tool box to be used by policy makers to accomplish their goals, without influencing what those ends are (Gordon and Dahl, 2013). From this perspective, if two economic theories disagree regarding how best to achieve a goal, the theories ought to each be empirically tested and the one that proves correct should be utilized.

In this picture, there is no space for disagreement among economists: the economist who continues to hold a view that has been empirically proven false is either irrationally attached to a specific belief or is being manipulated by interests. This view, however, is obviously far too simplistic for a number of reasons, but there is one that needs to be emphasized in the context of the Euro Crisis, for reasons to be discussed: while policy makers may specify broad goals, such as low unemployment and economic prosperity, it falls upon economists to interpret and provide specific content to these ends (Machlup, 1960).

Varieties of Capitalism and the Normative Side of Economics

The need for economists to specify the content of goals such as achieving economic prosperity would be relatively unproblematic if there was only one way for an economy to be successful; but this is not the case. The idea that that there is a single path to prosperity has been challenged by the framework of varieties of capitalism (VoC) (Hall and Soskice, 2001). VoC offers the view of national political economies as institutions for the resolving of coordination problems faced by firms. Central to this framework is the conclusion that some differences between national economic and political institutions ought not to be seen as “deviations from best practice that will dissolve as nations ‘catch up’ to a technological or organizational leader”(Hall and Soskice, 2001; p.1). Instead, these variations are durable choices, reflecting the multiple possible equilibria that can arise in situations of strategic coordination. The different possible institutional arrangements map onto a continuum specified by Hall and Soskice (and since complicated by subsequent theorists), with liberal market economies (LME) on one end and coordinated market economies (CME) on the other (Hall and Soskice, 2001; p.8).

The organizational structure of a political economy is composed of a dense web of interrelated institutions. These form and reform incrementally, suggesting that the institutions present actors with durable features of the economy and that policy aimed at economic prosperity must be attuned to these conditions. For example, in Germany, the prototypical CME, the institutional capacity for coordination enables it to orient its economy toward export-led growth. This capacity is the result of numerous complementary institutions that allow for wage restraint, firm-specific skill formation, and incremental innovation (Hall, 2014). Such an export-dependent arrangement disincentives the use of active macroeconomic policy associated with Keynesianism, since wage moderation by unions is contingent on the expectation that the government will not use discretionary fiscal policy to offset increases in unemployment (Carlin and Soskice, 2009). The institutional environment thus reduces the relevance of Keynesian tools, calling instead for alternative theories to increase in saliency.

Ideas—such as economic theories—can thus become part of the embedded web of features in a political economy. Further, these tapestries of ideas and institutions can have moral consequences. For example, while Keynesian tools are more effective in contexts with flexible labour markets, higher union density, found in coordinated economies, is associated with greater wage equality (Rueda and Pontusson, 2000). This institutional “web” may even include morally relevant features that might otherwise be thought to fall outside of the normal concerns of economics. For instance, it could be argued that the more general education associated with LMEs promotes the development of a well-rounded individual, better equipped to make sophisticated use of his or her agency and to protect his or her moral freedom than the person whose studies focused on a specific skill at an earlier age (Nussbaum, 2006). This suggests that ideas and ideologies have a real place in economic discussion and should not be treated dismissively, as many parties seemed to do in relation to the Euro Crisis this summer. The role of ideas in economic policy is of particular relevance as Europe looks to map out its future.

The Path to Integration

As the crisis in Greece this summer showed, the strategy of forcing austerity and structural reform on the southern European states is incompatible with either growth in the near term or democratic legitimacy. Besides the abandonment of the monetary union, only one viable option remains: a collaborative development program in which the EMU member states share responsibility for the prosperity of the monetary union as a whole (Hall, 2014). The possibility of such solidarity seems minimal, however, when differences in economic ideologies lead to dramatically conflicting views of both the causes of the crisis and the way forward in terms of European integration. On one hand, the German economy has developed intertwined with a doctrine of ordo-liberalism in which the primary role of the government is to set and adhere to rules; while other states, such as France, have long held views in greater alignment with Keynesianism, supporting a more activist government.

The institutions of each of these economies have developed in ways that support the embedded economic ideas. As a result, policy-makers are likely to project these views onto the rest of the Eurozone, regardless of their compatibility with the durable political institutions that reside in the other member states. This is a form of parochialism that must be overcome if a long term path to integration is to be found. Further, this problem has only been exacerbated by the willingness of politicians to adopt the idea of a single, rational path to economic prosperity as a tool to reduce political debate—as the European Commission did when trying to promote the monetary union by claiming that the Keynesian model was dead (Jabko, 1999).

In all likelihood, the long term prosperity of the EMU as a whole will require significant adjustments by both the northern and the southern member states. Among the changes some, myself included, see as necessary is coordinated wage growth in the northern economies, a move that countries like Germany are unlikely to see as being in their own interests or compatible with their economic doctrines (Johnston and Regan, 2015). This presents a serious obstacle for the monetary union, which has been strongly shaped by Germany. The framing of differences in economic doctrine as divides between rationality and ideology will not help in overcoming that difficulty. Instead, the path forward lies in using ideological conflicts to draw attention to the institutional variation that persist in member states and how those differences can be reconciled to integration.

Daniel Listwa is a George J. Mitchell Scholar, currently pursuing an MA in Philosophy and Public Affairs at University College Dublin. Dan received his BA in Philosophy and Economic at Columbia University and will begin on his JD at Yale Law School in the coming year. He is deeply interested in the roles of normative conceptions and decision making in shaping the social world. This blog post was completed as part of his assignment for the UCD Politics Module: European Political Economy. 

References

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